Why are so many top fundies overweight on CSL shares?

This is a healthy opportunity, according to a number of fund managers.

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Many leading fund managers have tipped CSL Ltd (ASX: CSL) shares as an appealing ASX healthcare share to own. In this article, we'll look at who's backing the biotech giant.

The CSL share price has been mixed in the last few months – it's up 20% since the end of October 2023 but down 8% from 9 February this year, as we can see on the chart below.

Here's why most leading fund managers are still optimistic about the business despite recent challenges.

What's to like about CSL shares?

According to reporting by the Australian Financial Review, an analysis of 30 Australian-focused funds showed that CSL shares were the most widely held within that group. Around two-thirds indicated CSL was among their most significant holdings.

And the strong-performing funds over three and five years were more likely to own CSL shares than BHP Group Ltd (ASX: BHP) shares or Commonwealth Bank of Australia (ASX: CBA) shares.

Tribeca Alpha Plus fund manager Jun Bei Liu had this to say (courtesy of AFR):

CSL has been a great compounder over many, many years. You find it in the bottom drawer of so many investment portfolios because it seems to grow year in, year out … and has so many of the characteristics of a quality company.

Another bullish investor, ECP Asset Management partner Sam Byrnes, said:

While CSL has encountered challenges… we maintain an optimistic outlook on Behring's long-term margin potential, and its competitive position in the flu business.

Macquarie analysts are also reportedly bullish on the business, suggesting that the CSL share price could reach $500 if it overcame short-term challenges and traded at a price/earnings (P/E) ratio closer to the average over the past decade.

More profit growth expected

When the biotech company reported its FY24 first half-year result, it reaffirmed its FY24 guidance of underlying net profit after tax (NPATA) being between US$2.9 billion and US$3 billion at constant currency exchange rates, which would grow between 13% and 17%.

Management believes the business is in a solid position to deliver annualised double-digit earnings growth over the medium term.

It expects strong growth with its immunoglobulins business because patient demand remains strong.

CSL has several initiatives in plasma collections that improve efficiencies and processing times to support the continued expansion of CSL Behring's gross margin.

The vaccine business has performed well in a "challenging season".

Finally, management said it was operating within an "evolving iron market" for CSL Vifor, with challenges for near-term growth. The company said it was well-positioned for iron competition in the EU and further geographic expansion.

According to projections on Commsec, the CSL share price is valued at 30x FY24's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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